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The Optimality of (s, S) Policies for a Stochastic Inventory Problem with Proportional and Lump-Sum Penalty Cost

Author

Listed:
  • Yash Aneja

    (Faculty of Business Administration, University of Windsor, Windsor, Ontario, Canada)

  • A. Hamid Noori

    (School of Business and Economics, Wilfrid Laurier University, Waterloo, Ontario, Canada N2L 3C5)

Abstract

In this paper we consider a single product multi-period inventory problem for which the penalty cost consists of two parts, a lump-sum portion which is independent of the size of the shortage and a portion which is linear in the size of the shortage. We show that for all nonincreasing demand density functions, the expected total cost function is K-convex and hence, there is an optimal policy for the n-period problem that is (s, S).

Suggested Citation

  • Yash Aneja & A. Hamid Noori, 1987. "The Optimality of (s, S) Policies for a Stochastic Inventory Problem with Proportional and Lump-Sum Penalty Cost," Management Science, INFORMS, vol. 33(6), pages 750-755, June.
    • Handle: RePEc:inm:ormnsc:v:33:y:1987:i:6:p:750-755
    DOI: 10.1287/mnsc.33.6.750
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    Cited by:

    1. Eric Logan Huggins & Tava Lennon Olsen, 2010. "Inventory Control with Generalized Expediting," Operations Research, INFORMS, vol. 58(5), pages 1414-1426, October.
    2. Sandun C. Perera & Suresh P. Sethi, 2023. "A survey of stochastic inventory models with fixed costs: Optimality of (s, S) and (s, S)‐type policies—Discrete‐time case," Production and Operations Management, Production and Operations Management Society, vol. 32(1), pages 131-153, January.

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